A day after politicians and industry celebrated the federal environmental approval of the Bay du Nord offshore oil megaproject, the Newfoundland and Labrador government said Thursday it was preparing for a strong drop this year in oil production and royalties.
But, in details revealed in Thursday’s budget, another natural resource makes that challenge much more bearable.
Volatility in the oil sector is partially offset by strong gains and unprecedented momentum in the mining sector, as well as increased revenue from corporate, personal and retail sales taxes.
The new budget revealed that oil production off the coast of Newfoundland and Labrador is expected to fall this year by 12 million barrels, to just over 82 million.
The decline is attributed to lower production, primarily at the Hibernia field, and planned maintenance shutdowns at others.
As a result, offshore royalties are expected to contribute $866 million to government revenue in 2022-23, down sharply from the $1.13 billion injected into the Treasury last fiscal year.
Dig up more mining taxes
Despite the drop, overall government revenue is expected to exceed $9 billion, up more than $500 million from last year, with officials attributing the increase in mining taxes and other factors.
The value of mineral shipments from the province exceeded $6 billion in 2021, up 35% from the previous year, due to increased mining of iron ore, nickel and copper in Labrador.
Employment in the mining sector also increased by almost 18%, mainly due to the continued expansion of the Voisey’s Bay mine.
Construction is also expected to begin this year at the new gold mine at Valentine’s Lake in central Newfoundland, and full-time employment is expected to reach 400 when mining begins.
With commodity prices rising, exploration at record levels and existing operations performing well, Energy Minister Andrew Parsons said the mining industry was on a roll.
“We want to increase revenue from mining, which is doing well right now,” Parsons said.
The Minister of Finance satisfied with the diversification
Meanwhile, falling production means oil and gas will account for around 10% of government revenue, down from 13% last year and a record 32% a decade ago.
“While [oil revenue] is extremely important, we are seeing a diversification of our economy and growth in mining,” said Finance Minister Siobhan Coady.
The budget is based on Brent crude – the international benchmark by which offshore oil is traded – averaging US$86 this year, up slightly from last year, and for an average exchange rate of just under 80 cents Canadian to the US dollar.
Despite lower volumes, the value of offshore production rose 43% to $8.1 billion due to the surge in the price of crude, which was trading at around US$115 a barrel at the end of March.
According to budget documents, oil and gas contributed $4.3 billion to the province’s economy last year and accounted for 2.4 per cent of total employment.
Terra Nova returning later this year
There are four mature offshore oil fields including Hibernia, Hebron, Terra Nova and White Rose.
A fifth producing field is now a strong possibility by the end of this decade, with the Bay du Nord project receiving environmental approval from the federal government on Wednesday.
Production at Hebron in 2021 was just under 51 million barrels, down 2.1%, while Hibernia totaled just over 36 million barrels, down 16%. The drop in Hibernia was attributed to a suspension of drilling in 2020 in response to the global pandemic.
The White Rose field, home to the SeaRose platform, reported a 21% drop in production to just over seven million barrels. The Terra Nova platform is being refitted in Spain, and has not produced oil since the end of 2019.
At the end of last year, more than 4,100 people worked directly in the province’s oil industry, according to budget documents.
Officials, meanwhile, expect production to increase again next year as Hibernia resumes drilling and the Terra Nova returns to the Grand Banks.
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